Selling House to Friend and Immediately Buying it Back.

**aurelius** · 01-07-2011, 10:04 AM

Here's the situation:

Person A owns a 200k house (100k paid off) and is 50k in debt, person A makes 85k a year. Person A barely breaks even by making minimum payments on cc debt. Person A was denied a home equity loan and refinancing.

Person B has a lot of spare money and a real estate license, person B is a personal friend to person A.

The idea is to have person B buy the house from person A @ market cost. Person A then pays off debt and applies for mortgage on same house with no debt whatsoever and 30k down, thus buying back his house from person B. Person B makes immediate profit by selling back at 10k higher.

Is this legal?

Also, other than person A losing by:
*paying $26,000 in sales taxes ($13,000 each sale)
*restarting mortgage

are there any other costs? Also, will person A be denied for a mortgage to re-buy their house because of this?

I truly appreciate any help. I know very little about real estate, but I do have a background in finance, so feel free to make the explanations as complicated as possible.

**Greg** · 01-07-2011, 11:36 AM

If person A can not refinance $50,000 how are they going to get a $236,000 loan?
$200,000 market value + $26,000 taxes + $10,000 profit = $236,000

**aurelius** · 01-07-2011, 04:51 PM

They don't, they keep living in the house and pass on payments to person B with a bonus. Of core, here we run into the problem of person B having more debt on their proverbial balance sheet, reducing their ability to get further credit, if need be.

Anyway, I was hoping someone on here knew what the chances of being denied for a mortgage (for person A) are solely due to this little transaction. Especially if anyone knows from real experience.

**Greg** · 01-09-2011, 07:12 AM

Originally Posted by aurelius

Person A was denied a home equity loan and refinancing.

You already answered your own question. See above. If they only owed $50,000 on a $200,000 property and they could not refinance then they have bad credit and can not get a loan right now. Unless your numbers are wrong.

**aurelius** · 01-09-2011, 12:05 PM

Credit score is 650. Dude has never missed a payment, not once in his life. His debt / income ratio is fucking him. The thing is, if he sells the house and uses the cash to pay off 53k of debt (50 cc, 3 left on daughter's car), he will have zero debt, a perfect payment history, and 85k stable annual income. He will also have around 30k to put down.

As far as I understand 30k down and 85k income / no debt is fine for 200k house. The question is this - will the fact that he is re-purchasing the same house affect their decision? On one hand, he is obviously using the purchase to unconventionally work out debt situation. On the other hand, he is paying off his debt, improving his situation and doing nothing illegal.

**rahnjoseph** · 01-10-2011, 03:01 AM

This is very much legal as it represents a legal transfer of property because their are not any written terms.

**Jonathan Radford** · 01-19-2011, 06:43 AM

I'll be the first to say "interesting idea," and also the first to say "seek legal counsel before you sign anything." I would be surprised if Uncle Sam doesn't have something to say about this arrangement. Good luck, and let us know how it works out!

**Esmond** · 01-19-2011, 10:21 PM

The execute this plan you need to seek legal advice from your personal friend as you should not allow this idea leek out in the legal agents. As they will reach the authorities and consequently the legislation will follow and then there will be no way to execute this plan.